Chapter_6 - CHAPTER 6: CONSUMER AND PRODUCER SURPLUS I....

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CHAPTER 6: CONSUMER AND PRODUCER SURPLUS I. Consumer Surplus II. Producer Surplus III. Imposition of Price floors and ceilings IV. Impact of tax
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Consumer Surplus and Producer Surplus Consumer surplus: the net gain an individual gets from buying a good Producer Surplus: the difference between the price and the cost What’s the point?
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Consumer surplus S D P Q P* Q*
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Producer surplus S D P Q P* Q*
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The sum of consumer & producer surplus is maximized at equilibrium in a perfectly competitive market. Total Surplus = CS + PS At equilibrium, there is no way to make people better off without making others worse off: it’s efficient!
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Market Change and CS/PS What happens to consumer surplus if technology improves? What happens to producer surplus if the price of a substitute good goes down?
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Question 6.1 The total consumer surplus for good X can be calculated in all except one of the following ways. Which is the exception? A) the sum of the individual consumer surpluses for all buyers of X B) the area below the demand curve for X and above the price of X C) the area bounded by the demand curve for X and the two axes D) the sum, for all buyers of X , of the difference between what each buyer is willing to pay for X and the amount actually paid
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Question 6.2
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Chapter_6 - CHAPTER 6: CONSUMER AND PRODUCER SURPLUS I....

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